By Christopher Lee
Washington Post Staff Writer
Saturday, September 6, 2008
Rep. Charles B. Rangel (D-N.Y.) did not know that the Caribbean resort villa he purchased 20 years ago was financed with a no-interest mortgage from the developer and has generated $75,000 in income that he should have reported on tax and financial disclosure forms, his lawyer said yesterday.
Lanny Davis said the powerful chairman of the House Ways and Means Committee, which oversees complex tax policy, was unaware until this week of the financial terms surrounding the Dominican Republic property because the developer of the Punta Cana Yacht Club did not regularly send annual financial statements to property owners.
The undisclosed income and favorable loan terms compounded the ethical controversies already enveloping the 38-year veteran of Congress.
In July, the Democrat from New York asked the House Ethics Committee to examine his fundraising entreaties to corporations and foundations on behalf of a university academic center that bears his name, and into his rental of several Harlem apartments at below-market rates.
Davis said Rangel likely will amend his federal, state and New York City tax returns and update his congressional financial disclosure filings. He also will ask the ethics committee to add the Caribbean real estate deal to its inquiry.
"We are confident that Mr. Rangel has done nothing wrong," he said.
That will not assuage the congressman's critics. Kenneth Boehm, chairman of the National Legal and Policy Center, said in a statement yesterday that his nonprofit group, which promotes ethics in public service, had filed complaints against Rangel with the Justice Department and the Internal Revenue Service.
"Ordinary citizens are prosecuted all the time for tax evasion," Boehm said. "Rangel should not get special treatment just because his committee writes the tax laws. A full investigation of this matter is warranted."
Rangel paid $82,750 for the beachfront Casita 412 in 1988, financed in part by a $52,000 loan from the developer that since 1990 has been interest-free, according to Davis and records released by the resort and Rangel's office. Rangel bought the property at the suggestion of Theodore W. Kheel, a friend and New York labor arbitrator who was a principal investor in the project. Proceeds from rentals at the resort property were automatically credited toward paying down the mortgage, Davis said, so the money did not flow directly into Rangel's pocket.
"He simply didn't realize that there was any actual income being generated, since he never received . . . any checks over the last 20 years," Davis said. "So he never realized there was any income tax filing issue or financial disclosure issue. Now that he knows what he knows, we're going to fix all that."
Two years after the opening of the property, the developer waived the interest rate on loans made to Rangel and other foreign backers among the initial investors known as "pioneers" because rental income had not met expectations, according to a written statement this week from Jose Oliva, director of the Yacht Club.
"Mr. Rangel did not receive individual preferential treatment," Davis said.
The initial loan was paid off by 2003, and Rangel borrowed an additional $23,000 to expand the unit to three bedrooms, Davis said. Rangel's share of rental revenue from the resort then went to pay off that loan, including about $1,100 in interest.
Only recently, in June, did Rangel see his first cash payment from the property, about $775 dollars, Davis said.
Rangel once valued the property at $250,000 or more on his federal disclosure forms, but Davis said it would be expected to fetch far less these days in the slumping real estate market.
The New York Post first disclosed Rangel's unreported income from the property in Sunday's editions. Rangel said in a statement that he had asked his accountant to review all the financial data concerning the Caribbean property. "Once my accountant obtains and verifies the facts, I will follow his recommendations," he said.
Davis said he expects Rangel to have no federal income tax liability from the villa because the congressman can deduct the taxes paid to the Dominican Republic and because he is entitled to deduct depreciation on the property. He estimated the back city and state taxes owed to be "in the several-thousand-dollar range."
Kevin Smith, a spokesman for House Minority Leader John A. Boehner (R-Ohio), called it "more than just a little ironic" that the leader of the tax-writing committee had not paid the U.S. taxes on income from his own luxury vacation home.